'Fare hike must for Mumbai Metro to make money'

'Fare hike must for Mumbai Metro to make money'

With Mumbai Metro One Pvt Ltd, a Reliance Infrastructure Ltd company, set to launch the first phase of the 11.4-km Mumbai metro services next month, analysts and lenders say the company’s ability to generate profits from the project in the near term will depend on the government’s clearance to hike fares.

“There is absolutely little or no interest from investors in Reliance Infrastructure,” said a Citi analyst.

The Rs 4,300-crore (Rs 43-billion) project -- marred by missed deadlines and cost overruns -- has finally started full scale test run last week between Ghatkopar and Versova and will open to public by mid-January.

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Image: Metro trains pass through a residential area during its first official safety trial run in Mumbai.Photographs: Danish Siddiqui/Reuters

'Fare hike must for Mumbai Metro to make money'

Analysts say the project’s viability hinges on getting a nod from the government for a fare hike.

While rating its Rs 1,840 crore (Rs 18.4 billion) of rupee loans and $70 million of its foreign loans, rating firm ICRA warned the project’s ability to generate enough cash flows to meet the debt servicing obligation remains contingent on the grant of the proposed fare hike by the Maharashtra government.

“Any delay in approval of the proposed fare hike would impact the project profitability and hence the rating of Mumbai Metro has been placed on rating watch and we would continue to monitor the developments and conclude the rating once clarity emerges on the proposed fare revision on the project,” says an ICRA analyst.

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Image: Trial run of the Mumbai Metro.Photographs: Suyogaerospace/Wikimedia Commons